US Inflation Dropped to 3.1% in June

[Frodo]

Before the end of the year, we will reach the 2% goldilocks inflation mark, far ahead of schedule:

US inflation is believed to have slowed sharply in June in a further sign of easing price pressures

What a wild ride.  We went from 9.1% in June 2022 to 3.1% this June in just a year.  And without a recession.  Though there are caveats of course:

Economists expect used-car prices to keep falling over the coming months. And even housing costs, which have risen significantly, have begun to cool, as apartment construction has reached a four-decade high.

Still, measures of underlying inflation could remain chronically high — well above the Fed's target level through the end of this year, in the view of most economists. Excluding volatile food and energy costs, for example, economists have forecast that “core” prices rose 5% in June from 12 months earlier, down from 5.3% in May but still uncomfortably elevated. From May to June, core prices are thought to have risen by a still-high 0.3%.

The Fed is considered certain to raise its key short-term rate again when it meets in two weeks. It paused its hikes last month after 10 straight rate increases beginning in March 2022. And officials at the central bank have signaled that they could hike rates again when they next meet in September.

But some economists have suggested that if inflation keeps slowing and the economy shows sufficient signs of cooling, the July increase could be the Fed's last.

[jaichind]

This is mostly about base effects due to a very high price period in June 2022.  The CPI MoM is still expected to be 0.3% which is non-trivial.  As mentioned what the Fed will care about is core CPI which is expected to be 5.0%.  Still, we will see in a few hours what the real numbers are.

[TheDeadFlagBlues]

This is mostly about base effects due to a very high price period in June 2022.  The CPI MoM is still expected to be 0.3% which is non-trivial.  As mentioned what the Fed will care about is core CPI which is expected to be 5.0%.  Still, we will see in a few hours what the real numbers are.

CPI MoM was 0.2% and annualized MoM was less than 2.2%. Annualized CPI Core MoM was 1.9%, less than 4.9% YoY. Just as media narratives were slow to respond to contemporaneous economic data indicating a large surge in inflation, media narratives are slow to respond to an abundance of evidence showing that inflation is, indeed, transient.

[jaichind]

https://uk.sports.yahoo.com/news/feds-kashkari-inflation-fight-must-133339783.html

"Fed's Kashkari: Inflation fight must be won, new stress tests could help"

U.S. financial regulators should take steps to ensure banks can withstand further interest-rate hikes should the Federal Reserve need to deliver them to fight entrenched inflation, Minneapolis Fed President Neel Kashkari said on Wednesday.

After these numbers came out some on the Fed still seems determined to increase rates and warned that the battle against inflation will need to go on for a while.   I suspect this has something to do with the core CPI still being at 4.8% even thought it is less than expected.  The case for a rapid declining inflation would be that this core CPI might still include rent prices from up to a year ago and the more recent slowdown in rental prices will take months to get worked into the core CPI as new rental contracts are signed.  Still, I expect the Fed to take that into account.

[jaichind]

I have a very crude metric: the Current Fed rate minus the last know YoY CPI,  This metric has a lot of problems are Fed rate is more forward-looking, and the CPI is backward-looking.  Still, I like it as a simple measurement of how "strong" the Fed rate is relative to the inflation problem it needs to fix.

This metric massively bottomed out at -4.4% in April 2022 before during upward.  This latest CPI YoY number puts this metric at its highest level since right before the 2008 financial crisis.   The current level is much higher than most of the post-2008 period but is pretty normal with the 1985-2001 period.  So assuming inflation can fall below 3% in 2024 on a consistent level I would expect the Fed rate increase to stop and stay put.  That would be a great outcome and finally ends this financial repression funny money era of 2008-2022.

[Benjamin Frank]

I have a very crude metric: the Current Fed rate minus the last know YoY CPI,  This metric has a lot of problems are Fed rate is more forward-looking, and the CPI is backward-looking.  Still, I like it as a simple measurement of how "strong" the Fed rate is relative to the inflation problem it needs to fix.

This metric massively bottomed out at -4.4% in April 2022 before during upward.  This latest CPI YoY number puts this metric at its highest level since right before the 2008 financial crisis.   The current level is much higher than most of the post-2008 period but is pretty normal with the 1985-2001 period.  So assuming inflation can fall below 3% in 2024 on a consistent level I would expect the Fed rate increase to stop and stay put.  That would be a great outcome and finally ends this financial repression funny money era of 2008-2022.

Normalizing rates, yes. However the 'funny money era' as you refer to it won't be over until the Federal Reserve is at least part way through quantitative tightening.

[jaichind]

I have a very crude metric: the Current Fed rate minus the last know YoY CPI,  This metric has a lot of problems are Fed rate is more forward-looking, and the CPI is backward-looking.  Still, I like it as a simple measurement of how "strong" the Fed rate is relative to the inflation problem it needs to fix.

This metric massively bottomed out at -4.4% in April 2022 before during upward.  This latest CPI YoY number puts this metric at its highest level since right before the 2008 financial crisis.   The current level is much higher than most of the post-2008 period but is pretty normal with the 1985-2001 period.  So assuming inflation can fall below 3% in 2024 on a consistent level I would expect the Fed rate increase to stop and stay put.  That would be a great outcome and finally ends this financial repression funny money era of 2008-2022.

Normalizing rates, yes. However the 'funny money era' as you refer to it won't be over until the Federal Reserve is at least part way through quantitative tightening.

Yes, I forgot about that.  Good point.  They tried to do this in Sept 2019 and caused all sorts of problems in the reverse repo markets.  I think the Fed has improved their "technique" on this and hopefully they can unwind that as well well.

[Clarko95 📚💰📈]

Means that wage growth exceeded inflation for the first time since March 2021:




Wages are up 4.4% compared to June last year, inflation is up 3%

Hopefully that holds.

[○∙◄☻¥tπ[╪AV┼cVê└]

Core is still 4.8% though.

[Frodo]

Core is still 4.8% though.

That is exactly why the Federal Reserve isn't done raising interest rates, yet. 

[jaichind]

Core is still 4.8% though.

That is exactly why the Federal Reserve isn't done raising interest rates, yet. 

The equity market is trading as if the Fed is done while the bond market is trading as if some more hikes are coming.  We will see.